Presentations and Communications

Response to the LAO's Analysis of the Budget BillCSU Support Budget Crosscutting Issues

CROSSCUTTING ISSUES

RECOMMENDATION 1

SUBJECT: FEDERAL TAX CREDITS AND STATE FINANCIAL AID

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Page F-21)

California's public higher education systems
and the SAC have considerable discretion on the details of allocating financial
aid to students. We expect that they will make financial aid shifts like
the ones described above in order to take advantage of the new federal tax
credits. These financial aid shifts imply major potential General Fund savings.

The Legislature should be involved in how these
shifts are made and how any savings are reallocated--whether to increase
financial aid for students who are too poor to receive the federal tax credits
(due to lack of tax liability), to fund other higher education needs, or
to address other state needs outside of higher education. Accordingly, we
recommend that the SAC, CCC, CSU, and UC each report prior to budget hearings
on the financial aid implications of the federal tax credits. These reports
should include:

Adequate data for the Legislature to understand
how each system's grants will interact with the federal credits.

Each system's specific plan for reallocating
financial aid in order to maximize Californians' receipt of the credits.

The Analyst reviews key features of the Hope Scholarship
and Lifetime Learning Tax Credits that were included in the Taxpayer Relief
Act of 1997 (TRA97). Observing that the tax credits apply to tuition and
related fees net of grant assistance, and that state-provided assistance
is primarily in the form of grant aid, the Analyst proposes that CSU, along
with the University of California, California Community Colleges, and the
Student Aid Commission, consider alternate student aid scenarios to "take
advantage of the new federal tax credits." Proposals suggested by the
Analyst were adjusting the amount of state assistance that otherwise would
be provided to students by the amount of any expected federal credit or
changing the state's assistance from a grant to a loan.

The Analyst also discusses perceived problems and
opportunities created by the federal tax credits in The 1998-99 Budget:
Perspectives and Issues. In that discussion the Analyst observes that:

The credits result in a much higher federal subsidy
per student in other states than in California-particularly, for community
college students;

The Hope Scholarship credit will unintentionally
shift enrollment away from our community colleges to the universities,
at potentially great cost to the state and at cross-purposes to the state's
higher education master plan; and

Due to interactions between the credits and recent
state fee reductions, the state is unintentionally sending monies intended
for students back to the federal government.

CSU RECOMMENDATION:

CSU will provide data to the Legislature to understand
how grants will interact with the federal tax credits. CSU maintains that
the current awarding criteria for both the State University Grant (SUG)
program and for Educational Opportunity Program (EOP) Grants effectively
target these limited resources to students with the most limited means of
affording a postsecondary education. The majority of these grant recipients
(or their parents) would not be eligible to claim either a Hope Scholarship
or Lifetime Learning Tax Credit even if the grant funds were not available.
The tax credits are "nonrefundable" meaning that if the taxpayer
has no tax liability he or she cannot claim a credit.

Over 61 percent of the financial aid received by
CSU students during 1996/97 was in the form of loans and the level of borrowing
on behalf of CSU students has increased at an alarming rate over the past
few years. CSU has been advocating that Congress and the Legislature address
the growing imbalance between grants and loans in order to avoid creating
a generation of college students with heavily mortgaged futures.

CSU COMMENTS:

The Taxpayers' Relief Act of 1997 (TRA97) was not
intended, promoted, or enacted as a student financial aid program. TRA97
was enacted in response to national concerns about college affordability.
Congress enacted TRA97 to provide tax relief to middle-income families for
college expenses and incentives for taxpayers to plan and save in order
to meet colleges expenses.

TRA97 provides that the amount of tuition and fees
for which a credit can be claimed is reduced by the amount of grants and
scholarships the student receives. The Analyst's report indicates that since
grants generally will reduce the amount of federal credit that qualifying
taxpayers otherwise would receive, state spending for student grants will
lead to "a dollar-for-dollar reduction in federal aid in California."
This statement is incorrect. The majority of students currently receiving
state supported grant aid at CSU are from families with no federal tax liability,
hence there is no loss or reduction of the tax credit as a result of the
grant. Additionally, the single largest grant program for California students
is the Federal Pell Grant program. Although many students receiving Pell
Grants are from families with no federal tax liability, there are substantial
numbers of students whose Federal Pell Grants would offset CSU fees. Federal
Pell Grants are distributed in accordance with formulas determined by Congress
and institutions have no discretion in "reallocating" those grant
funds. The receipt of state grant funds in addition to a Federal Pell Grant
would, in most cases, have no bearing on reducing any potential federal
tax credit.

State University Grants and Educational Opportunity
Program grants at CSU are targeted to assist students with the least ability
to pay educational expenses. The SUG award schedule is constructed on a
sliding scale that provides a full grant to offset the State University
Fee only to those students with expected family contributions (EFCs) of
$800 or less. The grant amount declines in increments of 20 percent of the
Fee as the EFC increases in increments of $800. Students with EFCs over
$4,000 are not eligible for a State University Grant. Over 62 percent of
1996-97 SUG recipients had EFCs of $800 or less. The median parental income
of dependent students with EFCs under $801 receiving State University Grants
during 1996/97 was $12,347. At the median family size of four, that family
would have no federal tax liability. The median parental income of all
dependent students receiving State University Grants during 1996/97 was
$18,056. At the median family size of four, that family would have a federal
tax liability of approximately $173 assuming that the entire income was
taxable and that they were able to claim only the standard deduction with
no other credits.

CSU does not estimate that there will be any potential
savings for student aid funding sources as a result of the federal tax credits.
The tax credits will accrue to the taxpayer (student or parent). They may
possibly be used to pay for subsequent educational expenses or reduce the
amount that might otherwise be borrowed to financial educational expenses.
The tax credits will not have any direct impact on the student's eligibility
for financial aid programs. CSU does not plan any change in awarding criteria
for its grant programs as a result of the tax credit provisions. In large
part, the population served by CSU grant programs is a distinctly different
from the population that will benefit from the federal tax credit provisions.

The Analyst's report, Taking Advantage of New
Federal Higher Education Tax Credits, is correct in the observation
that taxpayers in other states may be able to claim higher tax credits since
tuition and fees at public institutions in other states are typically higher
than those in California. For those students who are eligible for the Hope
Scholarship tax credit, the differential in fees paid net of the credit
will be significantly reduced between community colleges and CSU.

The report expresses concern that the reduced differential
will result in a shift in enrollments to CSU at a higher average expense
to the state and undermining the community colleges' role in baccalaureate
instruction. We have no data on the numbers of students who meet CSU admission
requirements as first-time freshmen but enroll at a community college. It
would be difficult to predict the extent to which those students might alter
their enrollment plans, paying an additional $1,146 (plus) in fees one year
in order to get a tax credit in the following year that is $893 more that
they would have been able to claim at a community college. The majority
of the students who would qualify for the tax credit come from middle to
upper-middle income families that have sufficient resources to pay CSU fees.
The majority of students from middle to upper-middle income families would
be receiving student loans if they receive financial aid. Presumably, financial
reasons would not have been the primary determinant of their enrollment
at a community college. For many, a decision to enroll at a CSU campus would
involve additional expenses beyond a higher fee level, i.e., room and board
costs to live away from home or additional transportation costs. This could
add to the potential educational indebtedness of the student.

CSU SUPPORT BUDGET ISSUES

CSU ISSUES

RECOMMENDATION 5

SUBJECT: CALIFORNIA STATE UNIVERSITY WANTS NEARLY
$40 MILLION IT ALREADY HAS

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Pages F-34)

The analysis indicates that the Governor's request
for a $39.6 million augmentation, ostensibly for enrollment growth, is necessary
because (1) the students in question are being served and (2) the funds
needed to serve them are demonstrably within CSU's base budget. Accordingly,
we recommend that the Legislature direct CSU to use productivity savings
and unreported revenues to continue to meet the enrollment growth that it
has already accommodated beyond compact assumptions.

The Legislature then would have the $39.6 million
available to meet General Fund priorities in other parts of the state budget
or reinvest in CSU for other activities. If the Legislature wants to keep
these funds within CSU, we suggest the following two spending options:

$17.1 million for an Extra-Teaching Incentive Fund

$22.5 million for needed facilities maintenance

The Analyst says CSU can accommodate on a continuing
basis the 8,400 FTES it has worked hard to enroll in fulfilling its commitment
to the state and policymakers not to deny access to qualified students.
The Analyst suggests CSU has $40 million in cumulative productivity improvements
available to fund enrollment over budgeted levels as well as unbudgeted
fee revenue that can be used to fund enrollment.

CSU RECOMMENDATION:

CSU rejects the Analyst's assumption that CSU has
resources to continue serving students without permanent, ongoing budget
support. Although the Analyst suggests that these dollars be redirected
to other important areas of CSU's budget, especially deferred maintenance,
CSU cannot sustain unbudgeted enrollment into the future without receiving
permanent funds for our "caseload" growth like any other state-supported
program.

The Analyst is in error in stating that funding
for enrollment is already in CSU base. Even with the funding compact guarantees
implemented in the 1995/96 fiscal year, resources available to CSU are limited.
There are several structural budget gaps the system is still seeking resources
to address.

The basic funding deficiencies in areas such as
faculty compensation, plant maintenance, technology, libraries, instructional
equipment and new building space total nearly $900 million. Recognizing
the serious problems resulting from these gaps, last year the Legislature
supported CSU's request for additional funding of $18 million to help finance
technology infrastructure upgrades and in 1996/97 the Legislature supported
the Analyst's recommendation for $21 million over three years to halt growth
in CSU deferred maintenance backlog. Unfortunately, both actions were vetoed
in Final Budget.

It is these gaps and other unfunded budget needs
that CSU has been asked to help address through annual productivity improvements.
Even with planned improvements of $10 million per year, CSU structural budget
deficits remain an area of significant, critical need.

Access has always been a high priority of the state
Master Plan for Higher Education. CSU has made access a high priority in
developing spending plans under the compact. The budget plan proposed by
the Board of Trustees for 1998/99 only focuses on mandatory costs, enrollment
and compensation as its priority concerns. After funding these priorities
($161 million), there is very little funding available ($13 million) for
other CSU budget needs.

CSU has worked hard to accommodate Master Plan
access that exceeds funded enrollment levels by using one-time funds to
support the one-time over-enrollment. One-time savings have been reported
to the Legislature in CSU's annual report on unexpended balances. One-time
funds used for excess enrollment include end-of year savings as well as
resources redirected from areas already in budget deficiency such as libraries
and position vacancies used to hire temporary faculty to meet the demand
for courses. These one-time funds cannot be used to fund student access
on a continuing basis and are not "new" revenue that can be used
to increase the CSU budget base. With increased state funding for enrollment,
CSU could hire permanent, tenure-track faculty to meet the demand for access
now and into the future.

Given its structural gaps, the one-time nature
of year-end savings, and the need for a permanent faculty base to sustain
enrollments, there simply are not enough funds in the CSU base budget to
enroll 10,320 full-time equivalent students on an ongoing basis. Using the
marginal cost basis for enrollment growth developed by CSU, the Analyst,
the Department of Finance and the University of California at the request
and with the approval of the Legislature during the 1996/97 budget process,
CSU requires $39.6 million in General Fund support for three percent enrollment
growth above the compact. CSU has included fee revenue, on the margin, associated
with the 10,320 students in our expenditure plan. Student fee revenue is
used in the expenditure plan to offset the total marginal cost of instruction
of $6,389 per student, including the use of one-third of the fee revenue
for the CSU State University Grant (SUG) program to assist eligible students
who need financial assistance.

CSU COMMENTS

CSU has done an excellent job of dealing with the
issue of access during a period of significant state economic decline and
measured recovery. The state's economy will depend heavily on the number
of college graduates it produces, and a college education is a dividing
line between those citizens who generally will do well economically and
those who will not. During good state economic conditions, now is the time
to invest, not retract, from the state's commitment to fund enrollments
in order to satisfy current and future enrollment demand.

A fundamental flaw with the Analyst's analysis
of higher education financing in general and CSU financing specifically
is the reliance on budget theory and funding processes that have not been
used by the state for the past seven years. The Administration and
Legislature have recognized the need to implement revenue-based budgeting
as a pragmatic means to best allocate limited state resources for higher
education caseloads and to achieve the highest degree of institutional accountability.
Under revenue-based funding, the only state support CSU has received recognizes
one percent annual average enrollment growth. If the state wants to maintain
a level of enrollment at the university that exceeds the one percent compact
requirement, and continue to provide access to higher education, then it
must provide General Fund support for the costs associated with this enrollment.

Flaws with the Analyst's Comments:

All of the students are NOT already there.

CSU exceeded 1996/97 funded enrollment by 7,000
FTES and is projected to exceed 1997/98 funded enrollment by as much as
8,000 FTES. This is not permanently funded enrollment; it is enrollment
CSU has served on a shoestring by using one-time funding, temporary faculty
and redirected resources. If permanent state resources are not provided
students will not have access to the courses and other services they need
to complete their degrees. Without the money to support them, CSU expects
these students to disappear, just as they did when the state reduced permanent
funding for enrollment in the early 1990s.

Under
expenditure-based budgeting previously used by the state, CSU would have
received funding in 1997/98 to acknowledge enrollment growth over 2% and
would have received increased state support in 1998/99 for all excess enrollment.
The state would also have provided funding in 1998/99 for all enrollment
projected to exceed that level. CSU would have received a one-time funding
augmentation in 1997/98 for 3,240 FTES, a permanent base budget increase
in 1998/99 for 8,400 FTES, and supplemental budget appropriations in the
1998/99 budget plan for 4,400 FTES.

CSU General Fund Enrollment Funding
Based on Marginal Cost(Dollars in Millions)

1997/98

1998/99

FTES

Dollars

FTES

Dollars

Expenditure-Based Approach

Funded Enrollment

258,000

$1,273.5

258,000

$1,273.5

Two Percent Threshold

5,160

0.0

Enrollment over Two Percent*

3,240

4.0

Next Year Base Increase

8,400

42.9

Next Year Enrollment Growth

4,400

22.5

Total Enrollment Funding

$1,277.5

270,800

$1,338.9

Total Enrollment Funding Increase

$ +$4.0

+12,800

$ +65.4

* Because funding for enrollment over two percent
was typically negotiated, in expectation of full funding in the subsequent year,
it is shown at 25¢ on the dollar for illustrative purposes.

CSU 1998/99 Funding Request

Funding in Compact for 1% Growth

2,580

13.2

Additional Enrollment Growth

7,740

39.6

Total 1998/99 Funding

+10,320

$ +52.8

Under the revenue-driven
budget process currently used by the state, CSU is not requesting any current
year supplement in 1997/98 for enrollment over funded targets, will accommodate
2,580 FTES growth in 1998/99 from compact revenue, and has requested additional
state support above the compact for 7,740 FTES. Under the current process,
CSU funding for enrollment is 2,500 FTES less than it would have been previously
(12,800 FTES funded under expenditure-based budgeting compared to 10,320
FTES requested under revenue-based budgeting). CSU accepts this disparity
as another measure of accountability under the new revenue-based state budget
process.

Productivity
Improvements. The Analyst points to
the $40 million cumulative productivity requirement of the compact as a
cash savings that can be distributed among the CSU campuses. As has been
previously noted, productivity improvements were designed under the compact
to help reduce growth in CSU budget gaps. If the state were still using
traditional budget processes for CSU, these gaps would be funded. If the
state were able to meet its traditional funding commitment in CSU budget
gap areas, then perhaps productivity could be used as a means to address
other gaps requiring state support.

Most importantly, productivity would not occur
if the campus achieving productivity improvements did not retain the direct
benefit of such efforts. Consequently, it would be illogical to assume productivity
improvements at San Luis Obispo could be used to fund excess enrollments
at San Diego or San Francisco. Given that option, there would be no incentive
for any productivity improvements at any campus. In fact, such an implied
redirection from where improvements occur seeks to penalize those
local offices, departments, schools and colleges that have made unprecedented
efforts to meet and exceed savings goals. The reality of revenue-driven
financing adopted by the Governor and the Legislature over the past seven
years and the basic premise for productivity under the compact argues that
productivity improvements cannot be used systemwide for permanent enrollment-related
costs.

CSU One-TIme Carryforward. The authority
for CSU carryforward was provided by the Legislature with the intent to
encourage change and productivity in the day-to-day operations of campuses
to promote greater cost efficiencies and help meet fiscal need. The Analyst
has referenced a CSU report on carryforward that shows roughly six percent
of funding available from CSU carryforward was specifically used to improve
student access. The majority of CSU carryforward funds were used to fund
Northridge earthquake recovery, make technology and telecommunications upgrades,
provide start-up funding for San Marcos and Monterey Bay, address deferred
maintenance and special repairs, replace instructional equipment, purchase
library volumes and fund programs and projects that would help CSU achieve
its annual productivity commitment under compact financing. Most importantly,
carryforward dollars have a one-use only restriction. Once spent they are
no longer available to the system. As previously explained to the Analyst,
it would be impossible to fund permanent enrollment costs with CSU carryforward.

CSU budget does not underestimate fee revenues

The state budget
for CSU has always been premised on the funded level of enrollment.
This means that for budget purposes under the compact, CSU budgets only
the change in General Fund and State University Fee resources. The Analyst
is in error when it states CSU revenue estimates are underestimated. Based
on the principle of financing included in the higher education compact,
CSU revenue estimates have been and are consistent with funded levels of
enrollment.

There are many
factors that influence what budgeted revenue estimates will ultimately become
when actual revenue is collected. CSU acknowledges that when enrollment
over budgeted targets occurs revenue for that excess enrollment is not reflected
in current year budget data. However, in requesting state funding for the
three percent enrollment over the compact target for the budget year, the
revenue estimate for that enrollment has been subtracted from the General
Fund request in accordance with the marginal cost enrollment funding methodology
approved by the Legislature in 1996/97. Consequently, CSU has only requested
enrollment funding at the marginal rate of $5,111 per full-time equivalent
student. Total marginal cost equals $6,389 for fiscal year 1998/99. Two-thirds
of the difference, funded from student fee revenue, is used for enrollment
growth costs. The remaining one-third of student fee revenue is used to
increase CSU financial aid for all students with need.

The Analyst fails to mention that the compact is
based on using other fee-related "unbudgeted" revenue as a
source for funding previously state-supported budget need. Funding for moving
expenses, space rental, expendable items to be used in new buildings, CSU
ancillary support programs such as the Joint Doctoral and Desert Studies
program, off-campus centers, public safety and a long list of other university
costs that were once provided by the state must now be funded with other
revenue available to the campus. The state budget does not show these revenue
increases; nor does it show the related increase in costs that they fund.
CSU budgets since implementation of the compact have recognized this basic
tenet of the state's new revenue-driven budget process for higher education,
and the Governor and Legislature has incorporated this principle in every
budget enacted under the compact.

CSU ISSUES

RECOMMENDATION 6

SUBJECT: STATE NEEDS TO PROCEED CAUTIOUSLY BEFORE MOVING

VENTURA OFF-CAMPUS CENTER

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Page F-38)

The Analyst recommends that the Legislature
delete the Governor's requested $5.2 million augmentation of California
State University's support item for higher costs of operating the Ventura
off-campus center at the now-vacated Camarillo State Hospital site pending
a completed environmental impact report and more thorough consideration
of alternatives.

CSU RECOMMENDATIONS:

CSU disagrees with the Analyst's recommendation
to delete funding to complete conveyance of the Camarillo State Hospital
(CSH) site.

CSU COMMENTS:

In 1996 the Governor created a special Task Force
to study the reuse of CSH. After months of evaluation, the Task Force overwhelmingly
recommended that the best possible reuse of the hospital was as a campus
of the California State University. Subsequent to the Task Force Report,
the Legislature voted to authorize the transfer of the vacant CSH to CSU
in Chapter 914, Statutes of 1997 (SB 623, O'Connell).

CSU has been actively studying the feasibility
of the reuse of CSH as a University since July of 1996. This process is
well underway with the basic financialanalysis and the campus master
plan to be completed in Spring 1998.

The Governor's Budget transfers $3.4 million currently
used for warm shutdown to CSU plant maintenance for the facility and supplies
$1.8 million based on the CSU funding standard for new space, a total of
$5.2 million. These funds will be used to support total facility maintenance
costs at the CSH site, which is considerably larger than the current off-campus
Ventura facility.

CSU ISSUES

RECOMMENDATION 7

SUBJECT: A MARKET-DRIVEN SOLUTION TO TRAIN MORE TEACHERS

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Pages F-40)

We recommend the Legislature redirect to the
Student Aid Commission $3.3 million requested by the California State University
to prepare more teachers. These monies then could be used to fund scholarships
- redeemable at any accredited teacher preparation program in the state
- to students whose financial needs impede them from pursuing the multiple
subject teaching credential.

The Analyst argues that CSU share of newly credentialed
teachers is declining and that the CSU proposal for use of the $3.3 million
will not assure an increased supply of teachers and would only "rearrange
demand."

CSU RECOMMENDATION:

CSU rejects the Analyst's assertion that redirection
of $3.3 million to the Student Aid Commission will double the number of
students that would be served under the CSU proposal. Redirecting this money
to individual scholarships does nothing to build permanent capacity for
greater production of fully qualified teachers. To meet that need, the state
needs to build capacity and infrastructure within more affordable public
teacher preparation programs.

CSU COMMENTS

As the major preparer of teachers in California,
CSU views teacher education central to its mission. As such, CSU has been
an active partner in several efforts to recruit, prepare and support fully
qualified teachers in order to serve the growing enrollment at our public
schools. CSU believes that a comprehensive strategy that includes recruitment
efforts such as the Center on Teacher Careers established by SB 824 (Greene-1997),
improvements in our campus programs as well as the expectations set for
earning a credential (Ryan Act), alternatives such as the Pre-internship
program established through AB 351 (Scott-1997) and programs such as the
Beginning Teacher Support and Assessment (BTSA) program are all critical
for success. At the same time, CSU needs to increase its permanent capacity
to serve new students who we hope to recruit into teaching in order to address
the growing demand. Our investment in the current budget through our Economic
Improvement Initiative (EII) and the $3.3 million proposed in the 1998/99
fiscal year are pieces of this puzzle -- and important if CSU is going to
continue responding to the state's needs.

Data Are Incorrect

CSU prepares individuals for credentialing through
various programs yet the California Commission on Teacher Credentialing
(CCTC) actually grants the credential once the student has successfully
completed their program.

The numbers cited by the Analyst in the section
titled Background are incorrect. The Analyst quotes numbers from
the CCTC's internal workload report. These numbers represent credentials
processed by the CCTC during a particular time period, not
program completion and credentials issued by CCTC. For example, it has been
reported that credential issuances attributable to CSU campuses dropped
by over 2,000 between 1995/96 and 1996/97. The processing of credential
issuances attributable to CSU dropped during that period, not because CSU
preparation lagged, but rather because the data processing priority in 1996/97
at CCTC was to address the surge of requests for emergency permits. CCTC
acknowledges that it will not have good data about 1996/97 credential issuances
attributable to individual colleges and universities until some time in
March 1998, and it intends to prepare a final 1996/97 data file in September
1998.

In addition, credential issuance statistics have
included not only counts of new teachers in K-12 schools, but also counts
of current teachers completing courses and requirements for credential.
While it is valuable to have complete counts of credential issuances, it
is especially important to have accurate information about the numbers of
new teaching professionals in California.

CCTC has acknowledged the interpretational difficulties
flowing from release of internal CCTC processing data. CCTC has agreed to
work with CSU to determine accurate historical credential counts and "market
share" figures in the next few months.

It is such a high priority for CSU to have more
useful credential issuance data that we have agreed to provide technical
support, as necessary. CCTC and CSU hope to have historical credential issuance
data for the last several years through 1996/97 available in April 1998.
As soon as these data are available, CCTC and CSU will forward them to the
Analyst.

CSU's proposal better ensures an increase in the supply of teachers.

The Analyst's assertion that CSU's proposal to
increase enrollment in CSU teacher education programs by 600 full-time equivalent
students would only rearrange demand is inaccurate. There are significant
numbers of teacher candidates who would not have the option of attending
the more expensive independent college programs (where tuition can range
from $1,000 for a 3-unit course to $20,000 for a complete credential program).
Since redirection of the $3.3 million to fund partial scholarships would
not sufficiently offset these tuition costs at independent colleges, it
would be unlikely that more students would pursue a credential. Increasing
access to CSU, with its affordable fee structure, will enable many more
teachers to become fully credentialed.

Redirecting CSU funds is not a Market-Driven Alternative

Redirecting $3.3. million from CSU to individual
scholarships does nothing to build permanent capacity for greater production
of fully qualified teachers. The current demand for qualified teachers is
not a one-time phenomenon. While class-size reduction dramatizes the shortage,
the profession is also facing a massive wave of teacher retirements coupled
with rapid enrollment growth. It is estimated that the state will need between
250,000 and 300,000 new teachers in the next ten years. To meet that need,
the state must build capacity and infrastructure within public teacher preparation
programs, add more tenure-track faculty positions and implement both new
and restructured alternate routes to full and intern teaching credential
status.

CSU CAPITAL OUTLAY CROSSCUTTING ISSUES

CROSSCUTTING CAPITAL ISSUES

RECOMMENDATION 1

SUBJECT: FINANCING PRIORITY CAPITAL OUTLAY PROJECTS

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Page H - 15)

Achieving a Better Balance for Infrastructure Finance. Recommend that
the Legislature dedicate a portion of annual General Fund revenues to a
special account to provide a "pay-as-you-go" funding source for
capital outlay. Further recommend that in 1998/99 the Legislature substitute
General Fund appropriations for the new lease-payment bonds proposed in
the budget for specific capital outlay projects.

CSU COMMENTS:

We concur with the Analyst's recommendation that
the Legislature should consider increasing the use of General Fund revenues
as a viable alternate source for capital outlay. Prior to the advent of
general obligation and lease payment bond programs, the CSU capital outlay
program was almost entirely funded from the Capital Outlay Fund for Public
Higher Education (COPHE) from 1968 through 1984. From 1960 to 1967/68, the
State Construction Fund (also a general obligation bond) was used for program
funding. In fact over the history of capital outlay funding for CSU, the
COPHE fund has contributed the largest amount of funding, second only to
the Public Building Construction Fund lease payment fund source.

We also agree with the Analyst's comment that the
state will probably always rely to some extent on bond financing for capital
outlay. However, we suggest that other viable financing options are available
and that all sources should be made available to help in solving the long-term
funding requirements for capital outlay.

As viable alternatives to the sources identified
by the Analyst, we recommend that the Legislature give consideration to
public/private financing, operating budget debt service, and user fees to
help agencies meet their capital outlay needs.

CROSSCUTTING CAPITAL ISSUES

LAO RECOMMENDATION 2

SUBJECT: FUNDING HIGHER EDUCATION CAPITAL OUTLAY

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Page H - 18)

Priorities and Criteria for Funding Higher Education
Capital Outlay. Recommend the Legislature adopt specified criteria and priorities
as the basis for capital outlay funding decisions for higher education.
Recommend the Legislature appropriate funds on a project-by-project basis
and not allocate available funds to the three segment on the basis of an
arbitrary allocation or formula. In addition,
to avoid starting projects that cannot be completed, the Legislature should
consider their full cost and the availability of funds at the time the first
commitments are made to fund projects.

CSU COMMENTS:

We disagree with the Analyst's recommendation to
eliminate the current practice of sharing general obligation bond resources
for capital outlay among the higher education segments on roughly a one-third
split. Application of this method began with the 1992/93 general obligation
bond program and we believe it to be a rationale approach to help the segments
meet their individual backlog needs. When the general obligation bond program
was reinstituted in 1986, the split among the three segments for the first
three bond measures was roughly forty percent each for the CSU and UC and
twenty percent for the CCC. The influence of local bond fund matching for
CCC districts was the primary reason. It is interesting to note that the
Analyst is recommending a return to the practice of local bond fund matching.

Although we agree that it is the purview of the
Legislature to establish the appropriate funding level for each of the segments,
we strongly urge that the one-third split be continued as a method to help
the segments in their long­range capital planning efforts. In addition,
we request that the Legislature consider augmenting the general obligation
bond program with other financing options in future capital outlay budgets
to assist the segments in eliminating the capital outlay funding shortfall
referenced in recent California Postsecondary Education Commission (CPEC)
reports.

We also disagree with the recommendation of the
Analyst that the Legislature use a uniform priority list for capital outlay
funding decisions for each of the three segments of higher education. While
the priority categories defined by the Analyst somewhat follow the CSU's
own categories and criteria, we believe that the governing boards of the
individual segments are the appropriate priority setting authority.

We also believe that the needs of the three segments
are sufficiently different so that individual projects should not be compared
on an intersegmental basis. We believe that attempts to create a "common
yardstick" will have a detrimental impact on the ability of the segments
to address their specific needs. For example, the need for administrative
space (the Analyst's priority 6) at a given campus may be as critical for
one segment as an enrollment growth (the Analyst's priority 4) project at
a campus in another segment.

While the priority categories generally follow
those of CSU, as mentioned above, the recommended placement of CSU's projects
does not follow the trustees' priority. The reason is the additional category
added by the Analyst, titled "Operationally Essential Facilities,"
places two CSU health & safety projects and three CSU utility deficiencies
projects in the same prioritization. If this Analyst recommended priority
5 category were eliminated and the CSU could place their projects in the
remaining categories, we would feel much more comfortable with this effort.

Also, the qualification criteria suggested by the
Analyst for priority categories 1 and 3 would tend to reward those campuses
that do not properly maintain their facilities. We feel judgment for placing
projects in these two categories is best left to the systems to evaluate
and prioritize. We agree with the seismic definition for category 1.

In addition, we support the long standing use of
the "target year" enrollment for planning capital outlay projects;
we do not think that changing to 95 percent of occupancy year need for enrollment
is appropriate.. Enrollment projections have been underestimated over the
past 30 years with the exception of the 1991-95 time period. Good long range
capital outlay planning efforts are not well served by artificially reducing
the historic target year parameter. While we could agree that it might be
appropriate as a fund rationing mechanism, it does not seem to be a reasonable
planning recommendation.

We support the Analyst's recommendation " that
the Legislature budget higher education capital outlay so that an available
fund source is identified to complete projects before approving the initial
phase of any project." The CSU capital outlay budgeting restructuring
plan addresses this specific issue. Over the past two years, working with
the Department of Finance and the Legislative Analyst, we have begun a budget
strategy that will ultimately lump sum fund all capital outlay projects
so that approved projects will be started and completed within the same
fund source.

In summary, we disagree that the current one-third
split of general obligation bond funds among the segments of higher education
should be discontinued. We also disagree that approval of capital outlay
projects for the three segments by the Legislature should be based on a
"common yardstick" priority list as recommended by the Analyst.
We do agree, however, in concept with the proposal that all projects considered
by the Legislature have an available fund source identified to complete
the projects before they are approved.

CROSSCUTTING CAPITAL ISSUES

LAO RECOMMENDATION 3

SUBJECT: ASSESSING SEISMIC RISK IN HIGHER EDUCATION
BUILDINGS

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Page H - 27)

The University of California (UC) and California
State University (CSU) Should Use the Department of General Services' (DGS)
System for Seismic Risk Evaluation. Recommend that prior to funding any
further seismic retrofit projects, the Legislature direct UC and CSU to
evaluate all projects for seismic retrofit using the DGS' seismic risk evaluation
method.

CSU COMMENTS:

We do not object to the recommendation of the Analyst
that a methodology be established to assess the life­safety risk posed
by all state buildings. We also believe that by endorsing the DGS system
the Analyst has attempted to establish a "uniform procedure and risk
assessment system" to understanding the potential life-safety risk
of state buildings.

However, we take exception to the Analyst's comment
that CSU only defines its buildings from highest to lowest risk and does
not identify the level of risk. To our knowledge CSU is the only agency
that establishes a separate priority life­safety seismic ranking for
each of its surveyed buildings. This differs from the DGS approach which
generally groups a number of buildings within a given category level of
risk. We believe CSU approach eliminates confusion as to which individual
building poses the greater seismic risk.

The basis for establishing the CSU priority ranking
is through the use of a life­safety index for all the buildings in the
system. This index was created by the CSU Seismic Review Board in order
to assess the life-safety risk to an individual who may occupy any building.
Our current building list is ranked on that basis. CSU has consistently
followed this list in seeking funds to undertake seismic retrofit projects
within the system.

The CSU life-safety index is the coefficient of
the particular building's location and its structural integrity. The location
determines the potential for ground motion generated by a particular site
with a probability factor included in the assessment. The DGS system seemingly
applies a uniform magnitude­seven event as a basis for establishing
risk­level characteristics for all buildings. The CSU life­safety
index is, on the other hand, more sensitive to individual building locations
and thus, we believe, is more accurate in determining the level of risk
for occupants of a given building. It should be noted that DGS considered
using the CSU method, but due to their extensive inventory of buildings
across their many sites, they needed a simpler system that could be applied
more easily.

To demonstrate the seeming compatibility of the
two systems, our Seismic Review Board ranked our current list using the
DGS methodology. This list will be transmitted separately. Even with the
differences in the criteria used in both systems, the results of applying
the DGS system to the CSU list draws very similar results. We do not have
an issue with showing a parallel comparison of priority ranking applied
to the list. However, we believe that the CSU life­safety index priority
ranking is superior, and that its application to the CSU list produces results
more consistent with the intent of the Analyst's desire to address life­safety
seismic risks at their highest level.

CSU CAPITAL OUTLAY DEPARTMENTAL ISSUES

CSU CAPITAL OUTLAY ISSUES

RECOMMENDATIONS 28

SUBJECT: REEVALUATE SEISMIC RETROFIT PROJECTS

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Page H - 82)

Reevaluate Seismic Retrofit Projects. Recommend that the Legislature
delete $7.7 million for two projects related to seismic retrofitting
of CSU buildings because (a) the seismic risk of these buildings needs to
be reevaluated using the Department of General Services' assessment method
and (b) the project scopes need to be reevaluated to limit the work to seismic
improvements only. (Delete Item 6610-302-0574 [1] for $3,743,000 and Item
6610-302-0574 [8] for $3,923,000.)

CSU GENERAL COMMENTS:

We oppose the Analyst's recommendation to delete
the CSU Fullerton Seismic Upgrade - Langsdorf Hall and the California Maritime
Academy Seismic Upgrade - Campuswide as these two projects meet DGS's criteria
for funding, and as the scope of work is limited to the structural strengthening.

It has been confirmed that the project rating for
Fullerton's Seismic Upgrade-Langsdorf Hall is a VI on the DGS scale. A transposition
error occurred incorrectly identifying it as a IV level project and was
so shared with the Analyst in an informal conversation. The California Maritime
Academy project is also confirmed as a DGS level VI project. A list of CSU
seismic projects including the DGS rating scale is being transmitted separately.

The initial studies for both projects were examined
and both consist primarily of structural strengthening corrections. Also
included is related architectural, mechanical, and electrical work directly
impacted by the project to insure code compliance and building function.
The Maritime Academy project also includes soil stabilization to minimize
the potential for soil liquefaction.

Based on this reevaluation and confirmation of
the projects' scope, these projects are consistent with the Analyst's priority
ranking for funding. Therefore, we recommend that the Legislature include
the $7.7 million to complete the construction of the retrofit for these
two projects.

CSU CAPITAL OUTLAY ISSUES

LAO RECOMMENDATION 29

SUBJECT: REEVALUATE MINOR PROJECTS AND SEISMIC STUDIES.

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Page H - 84)

Withhold recommendation on $14.2 million for minor capital outlay
and $200,000 for statewide seismic studies until the CSU reevaluates these
proposals in accordance with the statewide priorities and criteria.

CSU COMMENTS:

While we oppose the Analyst's priority ranking
system, we have reviewed the campus projects and listed them in rank order.
As expected the vast majority of the CSU's projects fall into Priority No.
4. - Undergraduate Academic Improvements. We have included the Seismic Studies
in Priority No. 1 - Critical Fire, Life Safety and Seismic Deficiencies
as the seismic studies are essential to evaluate the life­safety concerns
for campus buildings.

Historically, CSU has used the following descriptive
categories for the minor capital outlay program:

Category 2: Projects to meet retroactive code requirements
that are not a part of a statewide program or to correct other health and
safety deficiencies.

Category 3: Projects to maintain academic programs
by ensuring continuation of current services or by reducing program deficiencies.

Category 4: Projects to enhance academic programs
that will result in incorporating new or additional courses in campus curricula.

Category 5: Projects to accomplish general improvements,
including utility/site development and improvements to noninstructional
support facilities.

These categories have been used to fund a balanced
program which addresses life safety, disabled accessibility, academic improvements,
utilities infrastructure, support facilities and other projects. This fund
source is critical to meet the instructional needs of the campuses.

CSU CAPITAL OUTLAY ISSUES

LAO RECOMMENDATION 30

SUBJECT: SAN JOSE--BUSINESS BUILDING CAPITAL RENEWAL & SEISMIC

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Page H - 84)

Delete San Jose Business Building Project. Recommend
the Legislature delete the proposed $5.1 million to renovate the Business
Building at the San Jose campus because the project does not meet the proposed
statewide priority criteria for building renovation and the CSU has not
substantiated the need to extensively renovate the building. (Delete Item
6601-302-0574 [20] for $5,135,000.)

CSU COMMENTS:

This building was funded for construction on 1965
(Ch. 757/65, Item 353) and equipment provided in 1970. The design of the
building occurred more than 33 years ago. By confirming and correcting our
completion date, this project meets the priority criteria proposed by the
Analyst.

There are five areas of capital renewal in this
project. They are seismic strengthening, mechanical systems improvements,
access improvements, electrical system improvements, and architectural and
operating systems improvements. The deficiencies of each of these and the
cost of upgrading and replacing these systems are described below.

Seismic Strengthening:
The building was originally designed with discontinuities in the major seismic-resisting
shear walls. Although the cost of the remedy is small, the strengthening
is paramount to the integrity of the building.

State Cost: $196,000 plus fees and contingency
$233,000

Mechanical Systems Improvements:
The cooling capacity of this 33 year old facility is insufficient for current
use. This problem will be exacerbated with the proposed program improvements
unless the corrections are made. The mechanical design for air handling
does not provide adequate temperature control or air delivery to building
spaces. The existing air supply is an inefficient double duct constant volume
system controlled by aging, high-maintenance pneumatic controls. The system
does not adequately cool the classrooms. The condition was made worse by
the increased use and heat load of electronics, multimedia presentations
and computers. The dysfunctional building adversely affects the student
and faculty use of one of the most heavily scheduled classroom buildings
on campus.

The heat load will further rise with the remodel
requirements for more computers and more multimedia presentation equipment.
This heat load will be partially mitigated by the replacement of the ceiling
lights with room sensor controls. The remedy requires major modification
of the duct system and the addition of variable air volume boxes, use of
electronic controls, installation of return air fans, and an increase in
the cooling capacity of the air handlers by the installation of larger cooling
coils. Existing supply air fans motors will be replaced with new larger
units to increase air flow.

In addition, plumbing improvements are included
for the restrooms in the upper floors. These restrooms lack floor drains
or have drains installed in the wrong locations, which cause significant
damage when overflow conditions occur.

The state costs for these changes are only 42 percent
of the total mechanical systems cost.

State Cost: $898,000 plus fees and contingency
$1,066,000

Access Improvements:
As a result of the building modifications, existing law requires significant
access improvements be included in the project. While the campus has completed
some access improvements since the construction of the building, this project
will address restrooms, door thresholds, public phones, stair handrails,
drinking fountains and elevators. These items need to be brought into compliance
with state and federal regulations. Additional appropriate signage, tactile
warnings for the visually impaired, and assisted listening devises for those
with difficulty hearing will be provided to comply with current requirements.
The elevator repairs are both access related and failure related. These
costs are placed in the Operating Systems Improvements. All eight restrooms
are being remodeled to meet access requirements.

State Cost: $91,000 plus fees and contingency $108,000

Electrical Systems Improvements: The
existing building electrical service is just sufficient for current demand
and not adequate for the new loads imposed by the increase use of computers
in teaching, and the added load of the new higher capacity HVAC system.
Replacement of these major portions of the electrical systems have been
avoided by the installation of modern efficient lighting. The resulting
reduction in the lighting load offsets the added demand for power and reduces
the heat gain problems discussed in the mechanical section. The electrical
panels and pathways do not have capacity to meet the needs of the remodeled
room configurations and lighting circuits. As a result, additional conduit
throughout the building is required. Motor control centers, additional distribution
panels and subpanels are also required. The state share of the total electrical
costs of the project is 43 percent.

State Cost: $1,722,000 plus fees and contingency $2,045,000

Architectural and Operating System Improvements:
The elevator is constantly failing and does not meet accessibility requirements.
The hardscape of the site is uneven pavement and the trees and shrubs need
major work to allow effective access to building. The floor finishes, ceiling
tile and other areas require asbestos abatement. The bridge between the
office tower and the classroom building is exposed to the weather, as are
the stairwells. Pigeons are constantly fouling the stairs and bridge floor
creating a hazardous condition (as well as requiring significant ongoing
maintenance). The bridge and the stairwells will be enclosed to mitigate
the hazard. While the donor funds will pay for the majority of these costs,
the state will benefit from the improvement by reducing a maintenance problem,
and improved accessibility.

State Cost: $1,416,000 plus fees and contingency $1,683,000

The total cost of the project is $15,605,000. Donors
are funding the program area changes and a fair part of the mechanical and
electrical system changes. The donor funds allow for an increase in interactive
computer labs, renovation and reconfiguration of classrooms, providing a
student lounge and gathering space. The donor costs are $9,421,000 for PWC
and in the future will fund an additional $1,049,000 for equipment for project
total of $10,470,000. This is 67 percent of the total project costs.

Based on the need to modernize the building for
the academic program, address the necessary capital renewal areas efficiently
using one construction project, and effectively utilize available funds,
we recommend approval of this project.

CSU CAPITAL OUTLAY ISSUES

LAO RECOMMENDATION 31

SUBJECT: DEFER DECISION ON MOVING THE VENTURA
OFF-CAMPUS CENTER TO THE VACATED CAMARILLO STATE HOSPITAL SITE

BRIEF OF LEGISLATIVE ANALYST'S COMMENTS: (Page H - 85)

We recommend that the Legislature delete the
proposed $11.3 million for renovation of the vacated Camarillo State Hospital
for the California State University (CSU) Northridge, Ventura Off-Campus
Center because more information is needed to determine the long-term cost
implications of this proposal. We further recommend the Legislature adopt
supplemental report language directing CSU to complete studies necessary
to evaluate all options for locating the off-campus center. (Delete Item
6610-301-0660 [1], a reduction of $11,303,000.)

CSU COMMENTS:

CSU respectfully DISAGREES with the Legislative
Analyst's recommendations. CSU has followed a thorough due diligence process
in the evaluation of the adaptive reuse of Camarillo State Hospital (CSH)
as the Ventura Off-Campus Center, and ultimately, CSU Channel Islands
(CSUCI). CSU agrees to furnish copies of the studies as they are completed.

Background

Prior to the closure of CSH, the Governor created
a special Task Force to study the reuse of the hospital site. After months
of evaluation, the Task Force overwhelmingly recommended that the best possible
reuse of CSH was as a campus of the California State University.

In conjunction with the Governor's Task Force Study,
CSU was also asked to study the feasibility of the reuse of CSH as a university.
This began in July 1996. This process is well underway with the basic financial
analysis and the campus master plan to be completed in Spring 1998, using
$1 million appropriated by the Legislature in 1997/98.

Subsequent to the Task Force Report, the Legislature
voted to authorize the transfer of the vacant CSH to CSU in Chapter 914,
Statutes of 1997 (SB 623, O'Connell). A total of $607,000 was provided with
this transfer to expedite the planning process.

Ventura County is the largest county in the state
without a four­year university. Ventura County participation rates in
higher education are substantially lower than the state average. Demographic
trends in Ventura County show that there is a significant population of
students in the K-12 pipeline. These students have no other alternative
for a university education in Ventura County. The current Ventura Off­Campus
Center location is limited by available space; their lease expires in June
1999.

Maintaining CSH in its current warm shut down condition
will cost the state a minimum of $3.4 million annually. Despite the best
efforts of the existing staff, the $3.4 million is insufficient to maintain
CSH without further deterioration. General knowledge that CSH is closed
has increased the need for security to avoid damage due to vandalism and
theft.

The Department of General Services (DGS) has a
complex contractual obligation for the operation of a cogeneration plant.
This is predicated on a minimum consumption of steam for the heating of
CSH. The adaptive reuse of CSH as a university specifically excludes accepting any transfer of liability
for this transaction, except for consumption of electricity and steam. CSU
has met with DGS's Office of Energy Assessments (OEA) to discuss the management
and responsibility of the contractual obligations related to the cogeneration
plant. OEA has agreed that they will continue to maintain all obligations
under the terms of those contracts.

The following CSU comments are to specific issues raised by the Analyst:

Cost Benefit Analyses and Feasibility Studies
Not Completed. The Legislature has
appropriated $1.6 million to the CSU to complete certain specific studies
and analyses of the Camarillo site. The Legislature also should have this
information before it makes a decision on moving the Ventura center.

CSU COMMENTS:

The studies referenced by the Analyst will soon
be completed, and furnished to the Legislature, Governor and CSU Board of
Trustees. Preliminary information indicates that these studies support the
reuse of CSH as a university campus. Supplemental report language is unnecessary,
as CSU is already in compliance with the intent of this language.

Comparative Analysis of Camarillo and 260-Acre
Site. The Legislature should have
a cost-benefit analysis. It should identify when it would be cost-effective
to relocate the center to either site. The analysis also should consider
the cost of maintaining facilities that are not being used (such as the
significant cost of maintaining the unused buildings and infrastructure
at the Camarillo site) until such future time when enrollment growth may
permit their effective utilization.

CSU COMMENTS:

CSU, early on, completed a cost comparison between
the development of the orchard site versus CSH. The estimated cost to develop
the orchard site to a capacity of 2,000 FTES exceeds $60 million, whereas
the cost to develop a 2,400 FTES capacity at CSH is $11.3 million.
It should be understood that the orchard site would have none of the amenities
already available at CSH. A comparison was also made between the development
of CSH to 3,300 FTES and our experience at San Marcos to develop 3,000
FTES. Attachment "A" shows that the development of CSH saves the
state approximately $100 million and six years. Future expansion at the
orchard site would necessitate all new construction including utilities,
whereas, future expansion at the CSH could be undertaken using existing
facilities.

The existing off-campus center is at capacity in
its current leased facility; it must either relocate to another site, restrict
enrollment, or lease additional space until a new site becomes available.
The off-campus center pays approximately $550,000 annually for this leased
space.

The Analyst's comments on the maintenance of the
unused facilities are not valid. The obligation to maintain facilities at
CSH is an ongoing obligation to the "state," regardless
of who occupies it. The $3.4 million cost for a warm shut down will be an
ongoing cost and is insufficient to adequately maintain the facility in
its current condition. This amount is not sufficient to avoid the cumulative
effects of deferred maintenance. Failure to occupy CSH will only result
in the further degradation of the infrastructure and improvements.

Any contractual liability related to the cogeneration
plant rests with OEA. The impact of those contractual obligations were also
a consideration in the Governor's Task Force recommendation.

CSU can demonstrate that the cost per FTES for
capital improvements at CSH is approximately one­third the cost of space
at a new or existing campus. The first phase of development of 100,000 gsf
is accompanied by a complement of facilities that are invaluable to a campus
and include an equipped corporation yard, gym, large meeting rooms, maturely
landscaped grounds, roads, and a well maintained and operating utility infrastructure.
None of the above items exist at the orchard site.

The Analyst fails to recognize CSU's plan to utilize
surplus space for a variety of uses, including leasing space to the private
sector, locating a K-8 magnet school and the Ventura County Fire Department
Corporation Yard on site, and developing the undeveloped or underdeveloped
portions of the site.

Environmental Impact Report Not Completed.

Included in the work funded in 1997-98 was preparation and processing of
an environmental impact report (EIR). The Legislature should especially
be aware of any issues revealed through the EIR process that may affect
the costs to develop this site or may limit its development before it commits
to the Camarillo site.

CSU COMMENTS:

The EIR is being prepared in a program format which
addresses the full build­out of the proposed CSUCI campus at approximately
15,000 FTES. The draft EIR will be published by May 1, 1998, and mailed
out for comment. Copies of the draft EIR will be provided to the Legislature,
Governor and appropriate staff. The EIR is scheduled for Trustee approval
at its July 1998 board meeting. Any major environmental issues will be addressed
before transfer to CSU; however, the campus master plan is being completed
in a manner to ensure minimal environmental impact. The relocation of the
off­campus center would only require, at most, a negative declaration.

Cost for Underutilized Infrastructure.
There is substantial infrastructure in place at the Camarillo site and it
has been well-maintained, but this appearance of "cost­free"
facilities may be deceiving. The reason is that there is far more in the
way of buildings and utilities existing at this site than the CSU can use
in the foreseeable future, yet the state will have to bear the substantial
expense of operating and maintaining the excess space. The Camarillo site
is proposed to open as an off­campus center in January 1999 with an
FTE enrollment of 690 and 1.6 million gsf. Even at its planned enrollment
of 3,000 FTE in 2004-05, the CSU will have to maintain more than 1.3 million
gsf of buildings excess to the center's needs.

CSU COMMENTS:

By way of clarification, the campus core contains
approximately 1.2 million gsf. The balance of 400,000 gsf is located in
the residential and school areas east of the campus core.

CSU will initially occupy 100,000 gsf of renovated space, plus an additional
75,000 gsf in the "as is" condition. This space includes a gym, large meeting
rooms in the chapel, and the corporation yard.

CSU has proposed, as part of its management of
the unused space, to enter into partnerships with other entities in order
to lease portions of the campus for both public and private uses. The Pleasant
Valley School District Board has passed a resolution approving the location
of a K-8 magnet school at CSH which will occupy approximately 50,000 gsf.
Leases are being negotiated with the Ventura County Fire Department and
a software developer for an additional 70,000 gsf. Finally, the California
Conservation Corps occupies some 50,000 gsf and in return provides grounds
maintenance staff.

Contract Commitments for Cogeneration Plant.
A cogeneration plant has been constructed at the site by a private company.
It generates steam (which it sells to the hospital) and electricity (which
it sells to electricity utilities in southern California).The state is contractually
committed to purchase steam from this plant. When operated as a 1.6 million
gsf state hospital, this was not a disadvantage. When operated as a 100,000
gsf off-campus center, this purchase requirement may be a substantial burden.

CSU COMMENTS:

Key to this discussion is the fact that the "state"
(i.e., OEA) has a pre-existing long­term contractual obligation with
respect to operating a facility at the CSH site. The state would have this
obligation regardless of CSU's acceptance of the site. CSU accepts the responsibility
for the purchase and use of the required minimum steam flow, plus the purchase
of electricity on an as­needed basis. The state, on the other hand,
has a vested interest in having CSU occupy CSH in FY 98/99 to avoid a possible
breach of contract in the range of $40 million.

Use of Lease-Payment Bond Proceeds Is Highly Improper.

CSU COMMENTS:

CSU and the Department of Finance disagree with
the Analyst and support the use of lease-payment bonds for the development
of Phase 1.